Can an employer who is subject to Oakland’s Measure Z pay employees more and drop their health coverage?

Measure Z is an Oakland, California ballot measure which passed in November 2018 will take effect on July 1, 2019. It states that a hotel business with 50 or more rooms must pay employees $15 per hour and offer healthcare benefits or $20 per hour if it does not offer healthcare benefits. Healthcare benefits are not defined. For the purposes of this Q&A, we assume that healthcare benefits mean a standard group health plan.

An employer can always drop their health plan and pay employees more, however, there will be consequences depending on the employer’s status under the ACA. For example, Measure Z has no bearing on an employer’s obligations under the ACA. If an employer is required under the ACA to offer coverage, they must offer coverage. Paying employees more, unfortunately, is not an alternative under the ACA to offering coverage.

Here are the two most likely scenarios – both assume the employer is subject to Measure Z:

a) If the employer is a small employer under the ACA (fewer than 50 full-time, plus full-time equivalent employees), then the employer is under no obligation to offer health coverage under the ACA. For ACA small employers who are subject to Measure Z however, this could be a marketing opportunity for brokers. Small employers who are subject to Measure Z and don’t currently offer coverage will have to:

1. Pay $15/hour and offer health coverage, or
2. Pay $20/hour and not offer coverage
3. Comparing 1 and 2:
   • For a 40-hour per week employee, the difference between $15/hour and $20/hour is $800/month.
   • Certainly, an employer could put in place a cost-effective health plan for less than $800/month/employee.

This represents a sales opportunity for brokers.

b) If the employer is an Applicable Large Employer (ALE) under the ACA (50 or more full-time, plus full-time equivalent employees), they must offer qualified coverage to all full-time employees or risk costly penalties. There is no exception allowing ALEs to “pay employees more” in place of offering qualified health plans to full-time employees.

Of course, an ALE always has a choice to offer or not offer, but not offering comes with the potential to incur harsh ACA penalties. And If an ALE that is also subject to Measure Z doesn’t offer coverage and also doesn’t pay $20 per hour or more, then it looks like they would be subject to penalties under both the ACA and Measure Z.

Bottom line answer to the original question: assuming the employer is an ALE, it would not be wise to drop coverage and pay employees more because of the ACA penalty risk.

Can employers reimburse employees for Medicare premiums?

There are two scenarios in which an employer can reimburse employees for Medicare premiums:

1) Small Employers (under 50 EEs) can reimburse employees for Medicare premiums (and other health insurance plan premiums or any IRC Section 213d medical expense) through the use of a Qualified Small Employer HRA (QSEHRA) provided that the reimbursements are not restricted only to Medicare premiums.

2) An employer with fewer than 20 employees, (i.e. not subject to Medicare as secondary payer rules) can pay for employees’ Medicare Part B or D premiums so long as the employer also had standard small group coverage that is subject to market reforms, such as the annual dollar limit prohibition and preventative services requirements.

Regarding the QSEHRA – Not every small employer is eligible to implement a QSEHRA and certain restrictions may make it an undesirable solution, but a QSEHRA may be the right fit for certain employers.

Regarding employers with fewer than 20 employees – See the answer to question #3 in this IRS publication for a more detailed explanation of the requirements for a Medicare reimbursement arrangement.

If you or your clients are interested in learning more about the QSEHRA or Medicare reimbursement, our HR compliance partners TASC and HR Service can assist brokers and employers in setting up and administering QSEHRA’s and maintaining compliance for reimbursement arrangements. Please visit the HR Compliance section on our partner page for company descriptions and contacts.

Can an employer increase the lifetime maximum for orthodontia coverage during the plan year or at renewal?

During the plan year: Principal is the only carrier that Claremont represents that permits an employer to increase the orthodontia limit during the plan year.

At renewal: All other carriers that Claremont represents permit an increase in the limit at renewal. Those carriers are: Beam, Blue Shield of California, ChoiceBuilder, Delta Dental, Humana, MetLife, Reliance Standard, and UnitedHealthcare.

Note: final approval of limit increases is always subject to an underwriting review by the carrier.

Can an individual, who is 65 years or older, contribute to a Health Savings Account?

Yes. So long as an individual, who is 65 or older, is not enrolled in any part of Medicare, that individual can contribute to a Health Savings Account (HSA) that is connected to a High Deductible Health Plan (HDHP). Deciding whether to delay enrollment in Medicare for those 65 or over is a complicated question and depends on the individual’s financial circumstances and the size of the company which offers the HDHP.

Medicare Interactive.org provides an excellent description of the factors to consider if an individual would like to delay Medicare enrollment in order to continue contributing to an HSA.

Does Humana maintain their own network of dental and vision providers?

Dental – Humana maintains its own network of dental providers. Their network includes 46,000 providers in California and 250,000 providers nationwide.

Vision – Humana partners with Eyemed and offers members a choice of providers through Eyemed’s Insight Nationwide network which includes 15,700 providers in 3,500 locations across California and 70,000 providers in 24,000 locations nationwide. Retail locations include LensCrafters, Pearle Vision, Sears Optical, Target Optical, and JCPenney Optical. Online, members can also shop in-network at Glasses.com and Contactsdirect.com.

Can an employer contribute to an employee’s FSA?

Yes, but to maintain the tax-exempt status for both the employer’s and employee’s contributions, an employer’s contribution is limited. This answer applies to Health FSAs only.

Employers can match an employee’s pre-tax contribution to their FSA (Flexible Spending Arrangement) up to the maximum amount the employee is permitted to contribute. If the employee contributes less than $500, the employer is permitted to contribute more than the employee, but only up to $500. Examples best illustrate the rule. If an employee contributes these amounts to their Health FSA:

• $300. The employer is permitted to contribute any amount up to and including $500.
• $1,500. The employer is permitted to contribute any amount up to and including $1,500.
• $2,700 (the maximum allowable employee contribution for 2019). The employer is permitted to contribute any amount up to and including $2,700.

This article from the Society for Human Resource Managers is an excellent source of information regarding FSA’s. See the section “Employee and Employer Funding.”

Is California the only state that defines Small Group as 1-100 employees?

No. California, along with Colorado, New York, and Vermont all define a small employer as having up to 100 employees. All other states define a small employer as having up to 50 employees.

Some history…prior to 2016, states defined a small group as having no more than 50 employees. The Affordable Care Act redefined small group as having up to 100 employees. This change was set to begin in 2016. As the deadline drew closer, many states objected and Congress responded by enacting the PACE Act which gave states the choice of leaving the small group definition at 50 or expanding it to 100. So far only California, Colorado, New York, and Vermont have chosen to expand the definition.

Can employers “wrap” or pair a Health Reimbursement Arrangement with a small group medical plan in California?

Yes, but it depends on the type of Health Reimbursement Arrangement (HRA).

Most carriers expressly forbid employers from pairing a small group medical plan with an HRA that reimburses employees for medical expenses. The exception is Kaiser, which permits employers to pair a medical HRA with this one plan: Gold HRA HMO 2250/35 + Child Dental.

However, employers are permitted to pair “excepted benefits” HRAs with small group medical plans. Examples of excepted benefits HRAs are those that reimburse for dental, vision, long-term care and Medicare supplemental coverage.

Can I use Claremont’s eQuote-to-Enrollment service to manage changes during the plan year?

You can. Your client’s employees can make normal, qualified changes (add dependents, change address, etc.) by accessing their benefits portal in Ease (which is offered through your own account or Claremont’s – at no cost to you by the way). Ease can be configured to notify you, the group’s administrative contact or Claremont (or all three) that a change has been made. Then, depending on your arrangement with the client, one of the three can submit that change to the carrier just like normal. Or, in the case of Principal, which has just launched a direct link with Ease for ongoing administration, during-the-plan-year changes can be configured to transmit directly from Ease to Principal with no need for the group administrator, the broker or the general agent to get involved.

Can my client offer one set of medical benefits to salaried employees and a different set to hourly employees?

Yes, but with caution. Note: this answer is limited to health benefits, benefits such as retirement plans may be treated differently and should be discussed with a financial advisor.

Employers can offer different benefits or different levels of benefits (a “Program”) to different classes of employees provided that each employee who is in a similarly situated class is offered the same Program and provided that the classes are constructed from “bona fide employment-based classifications.”

Examples of employee classes:

• Full-time and part-time.
• Those in different geographic locations.
• Those with different lengths of service.
• Paid salary and paid hourly.

Two important factors to consider when designing Programs that differ by employee class. In general, the Program must be non-discriminatory. Specifically:

1. A Program cannot discriminate based on health and other medical factors (see DOL publication below).
2. A Program cannot discriminate in favor of highly-compensated individuals if a Section 125/Cafeteria Plan is in place (see Thomson Reuters guide below).

If an employer wishes to implement a Program whose benefits differ based on employee classification, especially if the classification is salary and hourly, where the likelihood of discrimination in favor of highly compensated individuals is much higher, we strongly recommend that you or the employer engage the services of a firm that specializes in compliance testing to ensure that all nondiscrimination requirements are satisfied. We encourage you to contact one of our partners below.

Resources

• Department of Labor: FAQs on HIPAA Portability and Nondiscrimination Requirements for Employers and Advisors (see Questions 12-24)
• Thomson Reuters Tax: What Nondiscrimination Tests Apply to Cafeteria Plans…

Claremont has vetted and partnered with a number of firms that offer HR Compliance services: Vendor Partners – HR Compliance.